German Q4 GDP growth contracts after exports slide

Reuters, BERLIN

Sat, Feb 23, 2013 - Page 15

A plunge in exports drove a contraction in German GDP in the fourth quarter, offsetting support from domestic demand, and highlighting the vulnerability of Europe’s largest economy to weakness in its eurozone trading partners.

Seasonally adjusted data from the German Federal Statistics Office confirmed an earlier flash estimate showing GDP shrank by 0.6 percent in the last three months of last year versus the previous quarter.

That was the biggest fall since the economy shrank by 4.1 percent at the start of 2009 and only the second contraction since the recession of 2008-2009.

“The data from the fourth quarter is relatively bad. That was a one-off,” Ulrike Kastens at Sal Oppenheim said. “For the current quarter we expect to see growth again. Exports will probably revive and domestic demand will develop stably.”

Most economists say the German economy is on the road to recovery and expect it to return to growth in the first quarter, thereby avoiding the second consecutive quarter of contraction that would put the country in a technical recession.

However, while sentiment indicators from Germany now point to a solid first-quarter German rebound, the hard data suggest a milder recovery after the dismal fourth quarter.

The most recent data for exports, industrial orders and output point to only a slight uptick.

BUSINESS MORALE

The Ifo’s business climate index is expected to show that morale among German businesses has improved for the fourth month running this month, boding well for future investments.

Yesterday’s breakdown of GDP data showed exports dropped by 2 percent in the fourth quarter while imports fell by 0.6 percent, boding ill for struggling eurozone states which had hoped to offload more of their goods on Germany, where rising wages, high employment and moderate inflation have boosted domestic demand.

Private consumption rose by 0.1 percent on the quarter and public consumption was up by 0.4 percent.

Investment in equipment has been falling for more than a year now and dropped by 2 percent in the fourth quarter as firms spent less on machines, tools and vehicles, the German Statistics Office said.

Many German companies are cutting costs, with steelmaker ThyssenKrupp recently saying it wants to cut 500 million euros (US$669.5 million) in costs over the next three years at its European steel operations.

Germany’s economy nonetheless remains in good shape compared to struggling eurozone peers like Greece and Italy, where GDP shrank by 6 percent and 0.9 percent respectively in the fourth quarter.